Deepak Spinners Ltd Management Discussions

INDUSTRY STRUCTURE & DEVELOPMENT

Indias textile sector stands as one of the oldest and most pivotal industries in the national economy, with a rich heritage spanning several centuries. The industry is notably diverse, encompassing traditional hand-spun and hand-woven textiles at one end and sophisticated, capital-intensive mills at the other.

A fundamental strength of Indias textile industry lies in its robust and integrated production base, covering a wide array of fibres and yarns. This includes natural fibres such as cotton, jute, silk, and wool, as well as synthetic and man-made fibres (MMFs) like polyester, viscose, nylon, and acrylic. India is among the few countries producing all types of MMFs, ensuring complete self-reliance across the textile value chain?from raw materials to finished garments.

The financial year 2024-25 marked a period of moderate growth and strategic transformation for Indias textile industry, characterised by muted demand in export markets, policy-driven investments, and evolving global dynamics. On the domestic front, however, the market remained challenging. Supply continues to outpace demand, leading to persistent pricing pressure across key yarn categories. The surplus situation, combined with high raw material costs and subdued consumer sentiment in certain regions, affected overall realisations.

OPPORTUNITY AND THREATS

The financial year 2024-25 presented a mixed landscape for Indias Man-Made Fibre (MMF) textile sector, characterised by both significant challenges and emerging opportunities.

Threats -

Indian MMF producers faced higher input costs, with polyester and viscose fibres priced higher than in competing nations like China and Vietnam. This disparity undermined the global competitiveness of Indian MMF products.

The sector grappled with outdated manufacturing technologies and a shortage of skilled labour, leading to inferior quality in polyester filament yarns compared to international standards. This limitation hindered the production of high-performance MMF fabrics.

Stringent import regulations, such as the Quality Control Order (QCO), restricted access to essential specialty yarns not produced domestically. Additionally, an inverted duty structure under the Goods and Services Tax (GST) and lower export incentives for MMF products compared to cotton textiles posed significant hurdles.

Opportunities-

The Indian government expanded the Production Linked Incentive (PLI) scheme to include small textile firms, aiming to boost MMF production and exports. As of June 2024, 64 proposals worth ?19,800 crore were approved under this scheme.

The negotiations on India-UK Free Trade Agreement (FTA) to reduce tariffs and enhance the competitiveness of Indian MMF textiles in the UK market, potentially increasing export margins, were finalised on 6th May 2025.

There is a growing global demand for sustainable and eco-friendly MMF products. Innovations in MMF production, such as the development of microfibers and smart textiles, are opening new markets. The durability and versatility of MMF fibres make them suitable for various applications, including outdoor clothing and technical textiles.

Indias decision to restrict textile imports from Bangladesh through land routes has benefited domestic cotton textile manufacturers and, to a limited extent MMF industry, potentially curbing the indirect influx of Chinese fabrics.

SEGMENTAL REVIEW AND ANALYSIS

Export demand witnessed a slight improvement over the previous year, primarily driven by renewed interest in specialised yarn segments, reflecting a gradual recovery in select international markets. This uptick is encouraging and aligns with the Companys focus on value-added products catering to niche segments. On the domestic front, however, the market remained challenging.

During the year, supply continued to outpace demand across key yarn categories, resulting in persistent pricing pressure. The surplus scenario, coupled with volatile raw material costs and muted consumer sentiment in select domestic and international markets, adversely impacted overall price realisations. The Company continues to monitor market trends closely and adapt its production and pricing strategies to mitigate the impact of these external pressures.

Investment in modernization and upgradation remains a cornerstone of the Companys long-term growth and operational strategy. The Company continues to focus on enhancing manufacturing efficiency, adopting clean energy solutions, and reducing operational costs through strategic infrastructure initiatives. During the year under review, the Company completed and commissioned a 4 MW solar power plant at its Guna unit. This initiative reflects the Companys commitment to sustainable operations and is expected to contribute significantly to energy efficiency and long-term cost savings. The solar plant will reduce dependency on conventional power sources and help lower the Companys carbon footprint in line with its ESG goals.

Looking ahead, the Company remains committed to making strategic investments in modernisation, ensuring operational resilience and long-term value creation for all stakeholders.

OUTLOOK

With strategic policy interventions, enhanced budgetary support, and a growing emphasis on sustainability and technological innovation, the Man-Made Fibre (MMF) sector in India is poised for robust growth in 2025-26. Government initiatives such as the expanded Production Linked Incentive (PLI) scheme, increased allocations under the National Technical Textiles Mission (NTTM), and targeted trade measures are expected to stimulate investment, improve product quality, and broaden export potential.

However, timely resolution of existing structural challenges?including high raw material costs, technological obsolescence, skill gaps, and fragmented industry operations?will be critical to fully leverage the emerging opportunities. Addressing labour-related bottlenecks through skill development initiatives, improving ease of doing business, and investing in automation and cost-efficient technologies will be critical for sustaining growth and enhancing Indias global competitiveness in the textile sector.

RISKS AND CONCERNS

Despite the promising outlook for the MMF sector in India, several risks and structural challenges persist that could impact its long-term sustainability and global competitiveness.

High costs for key raw materials such as polyester and viscose are reducing price competitiveness in global markets. The current GST framework leads to an inverted duty structure where inputs are taxed at a higher rate than finished goods poses financial disadvantage and affects working capital efficiency. The lack of investment in modern technologies and R&D impairs the sectors ability to produce high-value and performance-based textiles. Shortage of skilled workforce, particularly in areas of fiber engineering, textile design, and high-tech processing limits innovation and affects quality and productivity. The dominance of small and unorganized players in the MMF segment limits economies of scale, access to capital, and adoption of best practices.

While MMFs are increasingly viewed as sustainable alternatives, the industry must address concerns related to energy consumption, microplastic pollution, and recycling infrastructure. Non-compliance with emerging global sustainability norms could hinder export opportunities.

A significant share of Indias raw materials and intermediate inputs is imported. Disruptions due to geopolitical tensions, logistics bottlenecks, or import restrictions (such as Quality Control Orders) can create supply-side vulnerabilities.

India risks further erosion of its competitive position in the global MMF market if critical structural challenges are not addressed in a timely manner. Overcoming these issues will require a collaborative effort between industry stakeholders and the government. Strategic interventions?such as increased investment in advanced technologies, focused skill development programs, improved infrastructure, and stronger sustainability practices?will be essential. Additionally, the formulation and implementation of favourable and stable policy frameworks will play a pivotal role in ensuring long-term growth, resilience, and global competitiveness of the Indian MMF industry.

INTERNAL CO NTROL SYSTEMS AND ADEQUACY

The Company has established a robust internal control system that is commensurate with the size, scale, and nature of its operations. These internal controls are designed to ensure the efficient and effective utilization of resources, safeguard the Companys assets against unauthorised use or losses, and ensure that all transactions are properly authorised, recorded, and reported in a timely and accurate manner.

The internal control framework ensures that financial and operational data is reliable and provides a sound basis for preparing financial statements and other reports, thereby maintaining accountability across the organization. The management periodically reviews and upgrades internal controls and processes to ensure the efficient conduct of business operations and compliance with applicable laws and regulations.

An independent Internal Audit is conducted quarterly by Chartered Accountants, who maintain objectivity and independence by directly reporting to the Audit Committee of the Board. The Audit Committee regularly reviews the Internal Audit Reports, monitors the effectiveness of the internal control systems, and ensures that necessary corrective actions are implemented promptly wherever required. This ongoing review and oversight mechanism helps in strengthening controls and improving governance practices across the organisation.

FINANCIAL PERFORMANCE

a) The report of the Board of Directors may be referred to for financial performance.

b) Details of significant changes (i.e. changes as compared to the immediately previous financial year) in key financial ratios -

The variation in ratios is due to the net loss booked by the Company during the current year.

HUMAN RESOURCES

As on 31st March 2025, the Company had 3,009 employees on its rolls, compared to 3,127 employees as on 31st March 2024. The industrial relations remained cordial throughout the year, with a continued focus on employee engagement, well-being, and productivity.

The Company is committed to providing a favourable and inclusive work environment that encourages high performance, customer-centricity, and a strong sense of ownership and accountability. Emphasis is placed on fostering a culture of continuous learning, quality, and integrity, ensuring that employees are aligned with the Companys values and business goals.

CAUTIONARY STATEMENT

Statements in this Management Discussions and Analysis Report describing the Companys objectives, projections, estimates, expectations or predictions may be forward-looking statements within the meaning of applicable security laws or regulations. These statements are based on reasonable assumptions and expectations of future events. Actual results could, however, differ materially from those expressed or implied. Factors that could make a difference to the Companys operations include market price, both domestic and overseas availability and cost of raw materials, changes in Government regulations and tax structure, economic conditions affecting demand/supplies and other factors over which the Company does not have any control. The Company takes no responsibility for any consequences of decisions made based on such statements and holds no obligation to update these in future.